Rutland Fund Management, which in April 2001 closed the £210m Rutland Fund to invest in established companies in need to improve performance, has agreed to sell Edinburgh Woollen Mill to management in a secondary buyout led by Philip Day, the retailer’s chief executive.
The £68m transaction is being backed by Bank of Scotland Integrated Finance, which is providing a debt and equity funding package worth £82.6m including working capital. The financing comprises a senior debt tranche, a mezzanine piece and a subordinated loan.
Rutland bought the retailer in July 2001 for £49m and brought in new management, including Philip Day to improve operations in areas such as supply chain management, distribution, financial controlling, warehousing and marketing. Earlier this year Rutland took £12.3m out of the business as a part repayment of its investment.
Under Rutland’s ownership EWM, which has 285 outlets in the UK, increased earnings to £15.5m on turnover of £165m for the year to January 2002, up 50 per cent on 2001 (£10.3m).
BoS and Day approached Rutland earlier this year to see whether a sale might be on and entered into exclusive negotiations with the vendor six weeks ago. The majority of the equity will be owned by management, with BoS holding a significant minority stake.
Mike Gillespie, the director of Integrated Finance of Bank of Scotland who worked on the financing for the deal, said secondary buyouts accounted for a significant part of the bank’s current dealflow, as private equity houses are looking to realise investments in a difficult exit environment.
Gillespie commented in a statement: “We are currently witnessing an increased trend towards secondary buyouts as mature businesses seek alternative ways to fund growth rather than flotation. This transaction is a good example of how [we] can deliver a flexible funding solution. Not only are we able to release equity value to private equity firms, we can also allow management to plan the long term development of their business as we are not exit driven.”
The Rutland Fund was raised in 2001 with a view to taking advantage of the worsening economic outlook which was expected to force businesses into positions where they would benefit from active management. It has completed four investments which comprise Wolstenholme, a manufacturer of pigments and coatings for the print and plastics industries; Openshaw, a UK distributor of print supplies in the UK; Interfloor, a manufacturer of underlays for carpets and laminated flooring, and EMF.